Video: SECURE Act 2.0: Understanding the Benefits for Retirees

January 24, 2023
Image of Blaine Carr and the title, "SECURE Act. 2.0: Inheriting an IRA: What You Need to Know"
We’re back with the final installment of our SECURE Act 2.0 video series.  In our final video, Blaine Carr, CPA, CFP®, AIF®, Senior Wealth Advisor, overviews a few of the more important benefits of SECURE 2.0, including changes to catch-up contributions, 529 education accounts, and new Roth rules for employer 401(k) and 403(b) plans.

SECURE Act 2.0: Understanding the Benefits for Retirees

Video Transcript:

Welcome back to our third and final episode on the SECURE ACT.  The SECURE Act was signed into law in 2019, and SECURE 2.0 in December 2022.  The main purpose of these bills is to enhance income for retirees.  Today I am going to cover a few important benefits of SECURE 2.0.

Some of you might already be familiar with catch-up contributions in employer retirement plans.  For example, if you turn age 50 or older during 2023 you can contribute an additional $7,500 into your retirement plan. SECURE 2.0 increases the catch-up contribution for those aged 60-63.  The increased catch-up contribution will be the greater of 150% of the regular catch-up  contribution or $10,000.  If this rule were in effect for 2023 it would equate to a maximum catch-up contribution of $11,250.  Please note this doesn’t apply to IRAs or Roth IRAs.

An interesting opportunity available next year is the ability to rollover funds from a 529 education account to a Roth IRA.  The lifetime maximum amount of the rollovers cannot exceed $35k.  There are a few rules on this that I won’t go into here.  I am highlighting this in case any of you have funds left in a 529 or are hesitant to contribute to a 529 because the beneficiary might not be able to use all the money for education.

You can also elect to have some employer contributions to your 401(k) or 403(b) account treated as Roth funds, rather than pre-tax funds, if the plan offers Roth contributions.  You will be taxed on the employer Roth contributions in the year you receive them, but later on you get tax-free distribution treatment if you follow the rules.

FAQ 

  • Should I elect to have the employer contributions I receive as Roth?
    • The answer to this question is similar to whether to make your own contributions as Roth or pre-tax. Generally, you make Roth contributions if you expect your current tax rate to be lower than what it will be during retirement.  This is often the case for those who are younger and early on in their careers.  This could also be the case for someone who stands to inherit a large estate.  Remember, you pay tax on that contribution now and it will grow tax free and not be subject to mandatory distributions in the future.  If your income is lower now, electing Roth treatment for employer contributions could accumulate into a lot of tax-free income during your retirement years.

I recommend you consult a tax advisor regarding your specific circumstances and how the SECURE Act impacts you.

Thank you for tuning into this episode.  You can also check out the first two installments of our series on the SECURE Act by visiting our website, FaceBook page, or YouTube channel.  Please check these platforms out for other financial planning insights and share with a friend or family member if you think this will benefit them.